Tag: Hybrid loan

Luxembourg vs PPL-Co, July 2017, Cour Administrative, Case No 38357C

Luxembourg vs PPL-Co, July 2017, Cour Administrative, Case No 38357C

The Administrative Court re-characterised a profit-participating loan into equity for tax purposes. The court provided the following reasoning: “Compared with the criteria specified above for a requalification as a disguised contribution of capital, it should firstly be noted that the sums made available to the two subsidiaries were allocated to investments in properties intended in principle to represent investments in the medium or long term as assets of the invested assets and in the absence of a clause providing for a repayment plan or a fixed maturity, the sums were intended to remain at the disposal of the subsidiaries for a period otherwise limited. In addition, this availability of funds did not give rise to any fixed consideration from the two subsidiaries, but only to a share of the appellant in the capital gains generated by hotel disposals, this interest amounting to three quarters of the capital gains obtained by the affiliates.” “...the sums made available to the two subsidiaries ... Continue to full case
Canada vs. Burlington Resources Finance Company, Aug 2017, case NO. TCC 144

Canada vs. Burlington Resources Finance Company, Aug 2017, case NO. TCC 144

This case i about the legal requirement to submit evidence. The revenue service argues that the disputed questions are relevant to the matters in issue and that Burlington Resources Finance Company has either improperly refused to answer, or not fully answered, the questions. Burlington Resources Finance Company argues that all proper questions have been fully answered and that answers to improper questions have been correctly refused. The underlying tax assessment relates to disallowence of tax deductions for guarantee fees paid by Burlington Resources Finance Company Canada (“Burlington”) to it’s US parent, Burlington Resources Inc. (“BRI”), a resident U.S. corporation. Burlington’s business involved obtaining financing to fund the operations of affiliated Canadian companies. Specifically, Burlington was involved in borrowing funds from public markets and “on-loaning” those funds to its affiliated Canadian entities, which were conducting businesses related to crude oil and natural gas assets. BRI unconditionally guaranteed the payment of the Notes and Burlington “on-loaned” the proceeds to its Canadian sister ... Continue to full case
Australia vs. Orica Limited, December 2015 Federal Court, FCA 1399; 2015 ATC 20-547.

Australia vs. Orica Limited, December 2015 Federal Court, FCA 1399; 2015 ATC 20-547.

The Orica case involve funding of an overseas entity or operations by an Australian entity, where the funds are subsequently provided back to the Australian entity or its Australian associate in a manner which purportedly generates Australian tax deductions while not generating corresponding Australian assessable income (Free dip). The arrangements essentially involve the “round robin” movement of funds where an entity claims income tax deductions in Australia for costs of borrowing or obtaining other financial benefits (including satisfaction of liabilities) from an overseas party the loan or other financial benefit provided by the overseas party is in substance funded, directly or indirectly, by an investment by the entity claiming the deductions or its Australian associate the return on the Australian investment, reflecting the financing costs payable to the overseas party, comes back to Australia in a non-taxable or concessionally taxed form, for example, as a distribution from an overseas subsidiary which is not assessable under Subdivision 768-A of the Income Tax Assessment Act ... Continue to full case
Finland vs. Corp, July 2014, Supreme Administrative Court HFD 2014:119

Finland vs. Corp, July 2014, Supreme Administrative Court HFD 2014:119

A Ab had in 2009 from its majority shareholder B, based in Luxembourg, received a EUR 15 million inter-company loan. A Ab had in 2009 deducted 1,337,500 euros in interest on the loan. The loan had been granted on the basis that the banks financing A’s operations had demanded that the company acquire additional financing, which in the payment scheme would be a subordinated claim in relation to bank loans, and by its nature a so-called IFRS hybrid, which the IFRS financial statements were treated as equity. The loan was guaranteed. The fixed annual interest rate on the loan was 30 percent. The loan could be paid only on demand by A Ab. The Finnish tax authorities argued that the legal form of the inter-company loan agreed between related parties should be disregarded, and the loan reclassified as equity. Interest on the loan would therefore not be deductible for A Ab. According to the Supreme Administrative Court interest on the loan was tax deductible. The Supreme Administrative ... Continue to full case